Waste firm officials made stock gains

HOUSTON (AP) Waste Management executives made more than $50 million from stock sales just two months before the company announced a $250 million earnings shortfall that sent the stock plummeting.

The company confirmed Friday that top officials sold more than 1 million shares at $52 to $56 dollars per share. The announcement came one day after a lawsuit was filed in federal court in Houston, charging that executives made false public statements about the company's cash flow, competitive position and other factors to drive up the stock price before selling.

A company spokeswoman declined to comment Friday on the lawsuit, but she confirmed a report in The Wall Street Journal that Waste Management's No. 2 executive, president Rodney Proto, sold 300,000 shares in May for $16.5 million.

Spokeswoman Cherie Rice said Proto was taking advantage of the first unrestricted trading window for Waste Management insiders since 1996. She said Proto had been prohibited from selling shares because the company went through a series of mergers and transactions.

Once free of those restrictions in May, Ms. Rice said, ''He only had two choices: Let his options expire, and they would be gone forever, or he had to buy them and hold them because he couldn't sell them at all.''

Ms. Rice said the stock sale had no connection to the earnings shortfall disclosed this week.

On Wednesday, Waste Management's stock plunged 37 percent after the company warned that quarterly and year-end earnings would fall at least 10 percent short of expectations a $250 million shortfall in its core solid-waste business. The company said second-quarter earnings per share would be 67 to 70 cents, compared to the 78 cents per share projected by analysts.

For the year, the company projected earnings of $2.65 per share, well short of the $3.02 predicted by analysts polled by First Call Corp.

The stock dropped from $53.56 to $33.94 Wednesday and dipped again Friday, closing down $1.375 at $32.5625.

On Thursday, Morgan Stanley Dean Witter downgraded the stock from strong buy to neutral. That followed several downgrades on Wednesday, including Goldman Sachs, Merrill Lynch, Salomon Smith Barney and Deutsche Bank Alex Brown, all to neutral.

The shareholder lawsuit was filed by Little Rock lawyer Steven E. Cauley, who alleged that executives made false public statements about Waste Management's price adjustments, its competitive position, its cash flow from operations and its absorption of USA Waste Services in order to drive up the stock price.

Analysts said the lawsuit's allegations was a close call.

''The optics are terrible,'' said Hugh F. Holman of BancBoston Robertson Stephens. ''Either you give the management, these folks who are selling stock, the benefit of the doubt ... or you infer some nefarious motive and say 'Aha!' And I don't think anybody knows at this point.''

Holman said, however, that Waste Management has not been forthcoming about information. He said analysts must look at other indicators, not just the company's statements.

Waste Management says it expects to have a report out in the week that better pinpoints why its profits for the second quarter are off.

A soft housing and construction market may have been to blame, but Holman says it's too early to tell.

Some experts have said the company might have been too optimistic about quickly integrating its new components after last year's $13.5 billion merger between Houston-based USA Waste Services and Waste Management, then based in Oak Brook, Ill.

The company retained the Waste Management name, though USA Waste effectively gained control of its larger but struggling former rival. The combined company bought Mt. Laurel, N.J.-based Eastern Environmental Services Inc. in late 1998.